Internal Revenue Code:Sec. 1361. S corporation defined

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter S - Tax Treatment of S Corporations and Their
              Shareholders
          PART I - IN GENERAL
        

Statute

    Sec. 1361. S corporation defined
 
    (a) S corporation defined
      (1) In general
        For purposes of this title, the term ''S corporation'' means,
      with respect to any taxable year, a small business corporation
      for which an election under section 1362(a) is in effect for such
      year.
      (2) C corporation
        For purposes of this title, the term ''C corporation'' means,
      with respect to any taxable year, a corporation which is not an S
      corporation for such year.
    (b) Small business corporation
      (1) In general
        For purposes of this subchapter, the term ''small business
      corporation'' means a domestic corporation which is not an
      ineligible corporation and which does not -
          (A) have more than 100 shareholders,
          (B) have as a shareholder a person (other than an estate, a
        trust described in subsection (c)(2), or an organization
        described in subsection (c)(6)) who is not an individual,
          (C) have a nonresident alien as a shareholder, and
          (D) have more than 1 class of stock.
      (2) Ineligible corporation defined
        For purposes of paragraph (1), the term ''ineligible
      corporation'' means any corporation which is -
          (A) a financial institution which uses the reserve method of
        accounting for bad debts described in section 585,
          (B) an insurance company subject to tax under subchapter L,
          (C) a corporation to which an election under section 936
        applies, or
          (D) a DISC or former DISC.
      (3) Treatment of certain wholly owned subsidiaries
        (A) In general
          Except as provided in regulations prescribed by the
        Secretary, for purposes of this title -
            (i) a corporation which is a qualified subchapter S
          subsidiary shall not be treated as a separate corporation,
          and
            (ii) all assets, liabilities, and items of income,
          deduction, and credit of a qualified subchapter S subsidiary
          shall be treated as assets, liabilities, and such items (as
          the case may be) of the S corporation.
        (B) Qualified subchapter S subsidiary
          For purposes of this paragraph, the term ''qualified
        subchapter S subsidiary'' means any domestic corporation which
        is not an ineligible corporation (as defined in paragraph (2)),
        if -
            (i) 100 percent of the stock of such corporation is held by
          the S corporation, and
            (ii) the S corporation elects to treat such corporation as
          a qualified subchapter S subsidiary.
        (C) Treatment of terminations of qualified subchapter S
            subsidiary status
          (i) In general.--For purposes of this 
        title, if any corporation which was a
        qualified subchapter S subsidiary ceases to meet the
        requirements of subparagraph (B), such corporation shall be
        treated as a new corporation acquiring all of its assets (and
        assuming all of its liabilities) immediately before such
        cessation from the S corporation in exchange for its stock.
          (ii) Termination by reason of sale of 
        stock.--If the failure to meet the requirements of 
        subparagraph (B) is by reason of the sale of stock 
        of a corporation which is a qualified subchapter S 
        subsidiary, the sale of such stock shall be 
        treated as if--
                            (I) the sale were a sale of an 
                          undivided interest in the assets of such 
                          corporation (based on the percentage of 
                          the corporation's stock sold), and
                            (II) the sale were followed by an 
                          acquisition by such corporation of all 
                          of its assets (and the assumption by such 
                          corporation of all of its liabilities) in 
                          a transaction to which section 351 applies.
        (D) Election after termination
          If a corporation's status as a qualified subchapter S
        subsidiary terminates, such corporation (and any successor
        corporation) shall not be eligible to make -
            (i) an election under subparagraph (B)(ii) to be treated as
          a qualified subchapter S subsidiary, or
            (ii) an election under section 1362(a) to be treated as an
          S corporation,
        before its 5th taxable year which begins after the 1st taxable
        year for which such termination was effective, unless the
        Secretary consents to such election.
        (E) Information returns.--Except to the extent provided by the 
          Secretary, this paragraph shall not apply to part III of 
        subchapter A of chapter 61 (relating to information returns).
    (c) Special rules for applying subsection (b)
      (1) Members of a family treated as 1 shareholder.--
            (A) In general.--For purposes of subsection 
                (b)(1)(A), there shall be treated as one shareholder--
                  (i) a husband and wife (and their estates), 
                      and
                 (ii) all members of a family (and their 
                      estates).
            (B) Members of a family.--For purposes of this 
                paragraph--
                  (i) In general.--The term `members of a 
                      family' means a common ancestor, any lineal 
                      descendant of such common ancestor, and any spouse 
                      or former spouse of such common ancestor or any 
                      such lineal descendant.
                 (ii) Common ancestor.--An individual shall 
                      not be considered to be a common ancestor if, on 
                      the applicable date, the individual is more than 6 
                      generations removed from the youngest generation 
                      of shareholders who would (but for this 
                      subparagraph) be members of the family. For 
                      purposes of the preceding sentence, a spouse (or 
                      former spouse) shall be treated as being of the 
                      same generation as the individual to whom such 
                      spouse is (or was) married.
                (iii) Applicable date.--The term `applicable 
                      date' means the latest of--
                            (I) the date the election under 
                                section 1362(a) is made,
                           (II) the earliest date that an 
                                individual described in clause (i) holds 
                                stock in the S corporation, or
                          (III) October 22, 2004.
            (C) Effect of adoption, etc.--Any legally adopted 
                child of an individual, any child who is lawfully placed 
                with an individual for legal adoption by the individual, 
                and any eligible foster child of an individual (within 
                the meaning of section 152(f)(1)(C)), shall be treated 
                as a child of such individual by blood.
      (2) Certain trusts permitted as shareholders
        (A) In general
          For purposes of subsection (b)(1)(B), the following trusts
        may be shareholders:
            (i) A trust all of which is treated (under subpart E of
          part I of subchapter J of this chapter) as owned by an
          individual who is a citizen or resident of the United States.
            (ii) A trust which was described in clause (i) immediately
          before the death of the deemed owner and which continues in
          existence after such death, but only for the 2-year period
          beginning on the day of the deemed owner's death.
            (iii) A trust with respect to stock transferred to it
          pursuant to the terms of a will, but only for the 2-year
          period beginning on the day on which such stock is
          transferred to it.
            (iv) A trust created primarily to exercise the voting power
          of stock transferred to it.
            (v) An electing small business trust.
            (vi) In the case of a corporation which is a bank (as defined 
          in section 581) or a depository institution holding company 
          (as defined in section 3(w)(1) of the Federal Deposit Insurance 
          Act (12 U.S.C. 1813(w)(1)), a trust which constitutes an 
          individual retirement account under section 408(a), including 
          one designated as a Roth IRA under section 408A, but only to 
          the extent of the stock held by such trust in such bank or 
          company as of the date of the enactment of this clause.
          This subparagraph shall not apply to any foreign trust.
        (B) Treatment as shareholders
          For purposes of subsection (b)(1) -
            (i) In the case of a trust described in clause (i) of
          subparagraph (A), the deemed owner shall be treated as the
          shareholder.
            (ii) In the case of a trust described in clause (ii) of
          subparagraph (A), the estate of the deemed owner shall be
          treated as the shareholder.
            (iii) In the case of a trust described in clause (iii) of
          subparagraph (A), the estate of the testator shall be treated
          as the shareholder.
            (iv) In the case of a trust described in clause (iv) of
          subparagraph (A), each beneficiary of the trust shall be
          treated as a shareholder.
            (v) In the case of a trust described in clause (v) of
          subparagraph (A), each potential current beneficiary of such
          trust shall be treated as a shareholder; except that, if for
          any period there is no potential current beneficiary of such
          trust, such trust shall be treated as the shareholder during
          such period.
            (vi) In the case of a trust described in 
          clause (vi) of subparagraph (A), the individual 
          for whose benefit the trust was created shall be 
          treated as a shareholder.
      (3) Estate of individual in bankruptcy may be shareholder
        For purposes of subsection (b)(1)(B), the term ''estate''
      includes the estate of an individual in a case under title 11 of
      the United States Code.
      (4) Differences in common stock voting rights disregarded
        For purposes of subsection (b)(1)(D), a corporation shall not
      be treated as having more than 1 class of stock solely because
      there are differences in voting rights among the shares of common
      stock.
      (5) Straight debt safe harbor
        (A) In general
          For purposes of subsection (b)(1)(D), straight debt shall not
        be treated as a second class of stock.
        (B) Straight debt defined
          For purposes of this paragraph, the term ''straight debt''
        means any written unconditional promise to pay on demand or on
        a specified date a sum certain in money if -
            (i) the interest rate (and interest payment dates) are not
          contingent on profits, the borrower's discretion, or similar
          factors,
            (ii) there is no convertibility (directly or indirectly)
          into stock, and
            (iii) the creditor is an individual (other than a
          nonresident alien), an estate, a trust described in paragraph
          (2), or a person which is actively and regularly engaged in
          the business of lending money.
        (C) Regulations
          The Secretary shall prescribe such regulations as may be
        necessary or appropriate to provide for the proper treatment of
        straight debt under this subchapter and for the coordination of
        such treatment with other provisions of this title.
      (6) Certain exempt organizations permitted as shareholders
        For purposes of subsection (b)(1)(B), an organization which is
      -
          (A) described in section 401(a) or 501(c)(3), and
          (B) exempt from taxation under section 501(a),
      may be a shareholder in an S corporation.
    (d) Special rule for qualified subchapter S trust
      (1) In general
        In the case of a qualified subchapter S trust with respect to
      which a beneficiary makes an election under paragraph (2) -
          (A) such trust shall be treated as a trust described in
        subsection (c)(2)(A)(i), 
          (B) for purposes of section 678(a), the beneficiary of such
        trust shall be treated as the owner of that portion of the
        trust which consists of stock in an S corporation with respect
        to which the election under paragraph (2) is made, and
          (C) for purposes of applying sections 465 and 469 
        to the beneficiary of the trust, the disposition of the 
        S corporation stock by the trust shall be treated as a 
        disposition by such beneficiary.
      (2) Election
        (A) In general
          A beneficiary of a qualified subchapter S trust (or his legal
        representative) may elect to have this subsection apply.
        (B) Manner and time of election
          (i) Separate election with respect to each corporation
            An election under this paragraph shall be made separately
          with respect to each corporation the stock of which is held
          by the trust.
          (ii) Elections with respect to successive income
              beneficiaries
            If there is an election under this paragraph with respect
          to any beneficiary, an election under this paragraph shall be
          treated as made by each successive beneficiary unless such
          beneficiary affirmatively refuses to consent to such
          election.
          (iii) Time, manner, and form of election
            Any election, or refusal, under this paragraph shall be
          made in such manner and form, and at such time, as the
          Secretary may prescribe.
        (C) Election irrevocable
          An election under this paragraph, once made, may be revoked
        only with the consent of the Secretary.
        (D) Grace period
          An election under this paragraph shall be effective up to 15
        days and 2 months before the date of the election.
      (3) Qualified subchapter S trust
        For purposes of this subsection, the term ''qualified
      subchapter S trust'' means a trust -
          (A) the terms of which require that -
            (i) during the life of the current income beneficiary,
          there shall be only 1 income beneficiary of the trust,
            (ii) any corpus distributed during the life of the current
          income beneficiary may be distributed only to such
          beneficiary,
            (iii) the income interest of the current income beneficiary
          in the trust shall terminate on the earlier of such
          beneficiary's death or the termination of the trust, and
            (iv) upon the termination of the trust during the life of
          the current income beneficiary, the trust shall distribute
          all of its assets to such beneficiary, and
          (B) all of the income (within the meaning of section 643(b))
        of which is distributed (or required to be distributed)
        currently to 1 individual who is a citizen or resident of the
        United States.
      A substantially separate and independent share of a trust within
      the meaning of section 663(c) shall be treated as a separate
      trust for purposes of this subsection and subsection (c).
      (4) Trust ceasing to be qualified
        (A) Failure to meet requirements of paragraph (3)(A)
          If a qualified subchapter S trust ceases to meet any
        requirement of paragraph (3)(A), the provisions of this
        subsection shall not apply to such trust as of the date it
        ceases to meet such requirement.
        (B) Failure to meet requirements of paragraph (3)(B)
          If any qualified subchapter S trust ceases to meet any
        requirement of paragraph (3)(B) but continues to meet the
        requirements of paragraph (3)(A), the provisions of this
        subsection shall not apply to such trust as of the first day of
        the first taxable year beginning after the first taxable year
        for which it failed to meet the requirements of paragraph
        (3)(B).
    (e) Electing small business trust defined
      (1) Electing small business trust
        For purposes of this section -
        (A) In general
          Except as provided in subparagraph (B), the term ''electing
        small business trust'' means any trust if -
            (i) such trust does not have as a beneficiary any person
          other than (I) an individual, (II) an estate, (III) an
          organization described in paragraph (2), (3), (4), or (5) of
          section 170(c), or (IV) an organization described in section
          170(c)(1) which holds a contingent interest in such trust and
          is not a potential current beneficiary,
            (ii) no interest in such trust was acquired by purchase,
          and
            (iii) an election under this subsection applies to such
          trust.
        (B) Certain trusts not eligible
          The term ''electing small business trust'' shall not include
        -
            (i) any qualified subchapter S trust (as defined in
          subsection (d)(3)) if an election under subsection (d)(2)
          applies to any corporation the stock of which is held by such
          trust,
            (ii) any trust exempt from tax under this subtitle, and
            (iii) any charitable remainder annuity trust or charitable
          remainder unitrust (as defined in section 664(d)).
        (C) Purchase
          For purposes of subparagraph (A), the term ''purchase'' means
        any acquisition if the basis of the property acquired is
        determined under section 1012.
      (2) Potential current beneficiary
        For purposes of this section, the term ''potential current
      beneficiary'' means, with respect to any period, any person who
      at any time during such period is entitled to, or at the
      discretion of any person may receive, a distribution from the
      principal or income of the trust(determined without regard to any
      power of appointment to the extent such power remains 
      unexercised at the end of such period). If a trust disposes 
      of all of the stock which it holds in an S corporation,
      then, with respect to such corporation, the term ''potential 
      current beneficiary'' does not include any person who first 
      met the requirements of the preceding sentence during the 
      1 year period ending on the date of such disposition.     
      (3) Election
        An election under this subsection shall be made by the
      trustee.  Any such election shall apply to the taxable year of
      the trust for which made and all subsequent taxable years of such
      trust unless revoked with the consent of the Secretary.
      (4) Cross reference
          For special treatment of electing small business trusts, see
        section 641(c).
    (f) Restricted Bank Director Stock.--
            (1) In general.--Restricted bank director stock shall not 
        be taken into account as outstanding stock of the S corporation 
        in applying this subchapter (other than section 1368(f)).
            (2) Restricted bank director stock.--For purposes of this 
        subsection, the term `restricted bank director stock' means 
        stock in a bank (as defined in section 581) or a depository 
        institution holding company (as defined in section 3(w)(1) of 
        the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1)), if 
        such stock--
                    (A) is required to be held by an individual under 
                applicable Federal or State law in order to permit such 
                individual to serve as a director, and
                    (B) is subject to an agreement with such bank or 
                company (or a corporation which controls (within the 
                meaning of section 368(c)) such bank or company) 
                pursuant to which the holder is required to sell back 
                such stock (at the same price as the individual acquired 
                such stock) upon ceasing to hold the office of director.
            (3) Cross reference.--
           For treatment of certain distributions with respect to restricted bank 
           director stock, see section 1368(f).
    (g) Special Rule for Bank Required To Change From the Reserve 
Method of Accounting on Becoming S Corporation.--In the case of a bank 
which changes from the reserve method of accounting for bad debts 
described in section 585 or 593 for its first taxable year for which an 
election under section 1362(a) is in effect, the bank may elect to take 
into account any adjustments under section 481 by reason of such change 
for the taxable year immediately preceding such first taxable year.

Sources

    (Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1669;
    amended Pub. L. 98-369, div.  A, title VII, Sec. 721(c), (f), July
    18, 1984, 98 Stat. 967; Pub. L. 99-514, title IX, Sec.
    901(d)(4)(G), title XVIII, Sec. 1879(m)(1)(A), Oct. 22, 1986, 100
    Stat. 2380, 2910; Pub. L. 100-647, title I, Sec. 1018(q)(2), Nov.
    10, 1988, 102 Stat. 3585; Pub. L. 101-239, title VII, Sec.
    7811(c)(6), Dec. 19, 1989, 103 Stat. 2407; Pub. L. 104-188, title
    I, Sec. 1301-1302(c), 1303, 1304, 1308(a), (b), (d)(1), 1315,
    1316(a), (e), 1616(b)(15), Aug. 20, 1996, 110 Stat. 1777, 1779,
    1782, 1783, 1785, 1786, 1857; Pub. L. 105-34, title XVI, Sec.
    1601(c)(1), (3), (4)(B), (C), Aug. 5, 1997, 111 Stat. 1087; Pub. L.
    105-206, title VI, Sec. 6007(f)(3), July 22, 1998, 112 Stat. 810;
    Pub. L. 106-554, Sec. 1(a)(7) (title III, Sec. 316(b)), Dec. 21,
    2000, 114 Stat. 2763, 2763A-644.)
 

Miscellaneous

                              PRIOR PROVISIONS
      A prior section 1361, act Aug. 16, 1954, as amended, constituted
    subchapter R, prior to repeal by Pub. L. 89-389, Sec. 4(b)(1), Apr.
    14, 1966, 80 Stat. 116. For further details, see matter set out
    preceding subchapter S.
                                 AMENDMENTS

2007 - PL 110-28
SEC. 8235. <<NOTE: 26 USC 1361 note.>>  ELIMINATION OF ALL EARNINGS AND 
            PROFITS ATTRIBUTABLE TO PRE-1983 YEARS FOR CERTAIN 
            CORPORATIONS.
    In the case of a corporation which is--
            (1) described in section 1311(a)(1) of the Small Business 
        Job Protection Act of 1996, and
            (2) not described in section 1311(a)(2) of such Act,
the amount of such corporation's accumulated earnings and profits (for 
the first taxable year beginning after the date of the enactment of this 
Act) shall be reduced by an amount equal to the portion (if any) of such 
accumulated earnings and profits which were accumulated in any taxable 
year beginning before January 1, 1983, for which such corporation was an 
electing small business corporation under subchapter S of the Internal 
Revenue Code of 1986.

2007 - PL 110-28
SEC. 8234. TREATMENT OF THE SALE OF INTEREST IN A QUALIFIED SUBCHAPTER S 
            SUBSIDIARY.
    (a) In General.--Subparagraph (C) of section 1361(b)(3) (relating to 
treatment of terminations of qualified subchapter S subsidiary status) 
is amended--
            (1) by striking ``For purposes of this title,'' and 
        inserting the following:
                          ``(i) In general.--For purposes of this 
                      title,'', and
            (2) by inserting at the end the following new clause:
                          ``(ii) Termination by reason of sale of 
                      stock.--If the failure to meet the requirements of 
                      subparagraph (B) is by reason of the sale of stock 
                      of a corporation which is a qualified subchapter S 
                      subsidiary, the sale of such stock shall be 
                      treated as if--
                                    ``(I) the sale were a sale of an 
                                undivided interest in the assets of such 
                                corporation (based on the percentage of 
                                the corporation's stock sold), and
                                    ``(II) the sale were followed by an 
                                acquisition by such corporation of all 
                                of its assets (and the
                                assumption by such corporation of all of 
                                its liabilities) in a transaction to 
                                which section 351 applies.''.

2007 - PL 110-28
SEC. 8233. SPECIAL RULE FOR BANK REQUIRED TO CHANGE FROM THE RESERVE 
            METHOD OF ACCOUNTING ON BECOMING S CORPORATION.
    (a) In General.--Section 1361, as amended by this Act, is amended by 
adding at the end the following new subsection:
    ``(g) Special Rule for Bank Required To Change From the Reserve 
Method of Accounting on Becoming S Corporation.--In the case of a bank 
which changes from the reserve method of accounting for bad debts 
described in section 585 or 593 for its first taxable year for which an 
election under section 1362(a) is in effect, the bank may elect to take 
into account any adjustments under section 481 by reason of such change 
for the taxable year immediately preceding such first taxable year.''.

2007 - PL 110-28
SEC. 8232. TREATMENT OF BANK DIRECTOR SHARES.
    (a) In General.--Section 1361 <<NOTE: 26 USC 1361.>>  (defining S 
corporation) is amended by adding at the end the following new 
subsection:
    ``(f) Restricted Bank Director Stock.--
            ``(1) In general.--Restricted bank director stock shall not 
        be taken into account as outstanding stock of the S corporation 
        in applying this subchapter (other than section 1368(f)).
            ``(2) Restricted bank director stock.--For purposes of this 
        subsection, the term `restricted bank director stock' means 
        stock in a bank (as defined in section 581) or a depository 
        institution holding company (as defined in section 3(w)(1) of 
        the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1)), if 
        such stock--
                    ``(A) is required to be held by an individual under 
                applicable Federal or State law in order to permit such 
                individual to serve as a director, and
                    ``(B) is subject to an agreement with such bank or 
                company (or a corporation which controls (within the 
                meaning of section 368(c)) such bank or company) 
                pursuant to which the holder is required to sell back 
                such stock (at the same price as the individual acquired 
                such stock) upon ceasing to hold the office of director.
            ``(3) Cross reference.--

``For treatment of certain distributions with respect to restricted bank 
           director stock, see section 1368(f).''.

      2005 - P.L. 109-135, Section 413
      (c) Amendments Related to Section 239 of the Act.--Paragraph (3) of 
      section 1361(b) is amended--
            (1) in subparagraph (A), by striking ``and in the case of 
        information returns required under part III of subchapter A of 
        chapter 61'', and
            (2) by adding at the end the following new subparagraph:
                    ``(E) Information returns.--Except to the extent 
                provided by the Secretary, this paragraph shall not 
                apply to part III of subchapter A of chapter 61 
                (relating to information returns).''.
      2005 - P.L. 109-135, Section 403
      (b) Amendment Related to Section 231 of the Act.--Paragraph (1) of 
      section 1361(c) is <<NOTE: 26 USC 1361.>> amended to read as follows:
            ``(1) Members of a family treated as 1 shareholder.--
                    ``(A) In general.--For purposes of subsection 
                (b)(1)(A), there shall be treated as one shareholder--
                          ``(i) a husband and wife (and their estates), 
                      and
                          ``(ii) all members of a family (and their 
                      estates).
                    ``(B) Members of a family.--For purposes of this 
                paragraph--
                          ``(i) In general.--The term `members of a 
                      family' means a common ancestor, any lineal 
                      descendant of such common ancestor, and any spouse 
                      or former spouse of such common ancestor or any 
                      such lineal descendant.
                          ``(ii) Common ancestor.--An individual shall 
                      not be considered to be a common ancestor if, on 
                      the applicable date, the individual is more than 6 
                      generations removed from the youngest generation 
                      of shareholders who would (but for this 
                      subparagraph) be members of the family. For 
                      purposes of the preceding sentence, a spouse (or 
                      former spouse) shall be treated as being of the 
                      same generation as the individual to whom such 
                      spouse is (or was) married.
                          ``(iii) Applicable date.--The term `applicable 
                      date' means the latest of--
                                    ``(I) the date the election under 
                                section 1362(a) is made,
                                    ``(II) the earliest date that an 
                                individual described in clause (i) holds 
                                stock in the S corporation, or
                                    ``(III) October 22, 2004.
                    ``(C) Effect of adoption, etc.--Any legally adopted 
                child of an individual, any child who is lawfully placed 
                with an individual for legal adoption by the individual, 
                and any eligible foster child of an individual (within 
                the meaning of section 152(f)(1)(C)), shall be treated 
                as a child of such individual by blood.''.

      2004 - Subsec.239(a),Pub.L.108-357, amended Sec.1361(b)
     (3)(A) by inserting "and in the case of information returns 
     required under part III of subchapter A of chapter 61'' after
    ``Secretary''.  This amendment shall apply to taxable years
      after December 31, 2004.
      2004 - Subsec.236(a),Pub.L.108-357, amended Sec.1361(d)
     (1) by adding new subparagraph(C).
      2004 - Subsec.234(a),Pub.L.108-357, amended Sec.1361(e)
     (2) by (1) by inserting ``(determined without regard to any power 
      of appointment to the extent such power remains unexercised at 
      the end of such period)'' after ``of the trust'' in the first 
      sentence, and (2) by striking ``60-day'' in the second sentence 
      and inserting ``1-year''.        
      2004 - Subsec.233(b),Pub.L.108-357, amended Sec.1361(c)
    (2)(B) added new clause (vi).
      2004 - Subsec.233(a),Pub.L.108-357, amended Sec.1361(c)
    (2)(A)added new clause (vi).
      2004 - Subsec.232(a),Pub.L.108-357, amended Sec.1361(b)(1)
    (A) by striking "75" and inserting "100". This amendment 
    shall apply to taxable years beginning after December 31, 2004.
      2004 - Subsec.231(a),Pub.L.108-357, amended Sec.1361(c) by
    amending paragraph (1).  Effective date:  Shall apply to 
    taxable years beginning after December 31, 2004.
      2000 - Subsec. (e)(1)(A)(i)(IV). Pub. L. 106-554 added subcl.
    (IV).
      1998 - Subsec. (e)(4). Pub. L. 105-206 substituted ''section
    641(c)'' for ''section 641(d)''.
      1997 - Subsec. (b)(1)(B). Pub. L. 105-34, Sec. 1601(c)(4)(C),
    substituted ''subsection (c)(6)'' for ''subsection (c)(7)''.
      Subsec. (b)(3)(A). Pub. L. 105-34, Sec. 1601(c)(3), substituted
    ''Except as provided in regulations prescribed by the Secretary,
    for purposes of this title'' for ''For purposes of this title''.
      Subsec. (c)(6), (7). Pub. L. 105-34, Sec. 1601(c)(4)(B),
    redesignated par. (7) as (6).
      Subsec. (e)(1)(B)(iii). Pub. L. 105-34, Sec. 1601(c)(1), added
    cl. (iii).
      1996 - Subsec. (b)(1)(A). Pub. L. 104-188, Sec. 1301, substituted
    ''75'' for ''35''.
      Subsec. (b)(1)(B). Pub. L. 104-188, Sec. 1316(a)(1), amended
    subpar. (B) generally.  Prior to amendment, subpar. (B) read as
    follows: ''have as a shareholder a person (other than an estate and
    other than a trust described in subsection (c)(2)) who is not an
    individual,''.
      Subsec. (b)(2)(A). Pub. L. 104-188, Sec. 1315, amended subpar.
    (A) generally.  Prior to amendment, subpar. (A) read as follows:
    ''a financial institution to which section 585 applies (or would
    apply but for subsection (c) thereof),''.
      Pub. L. 104-188, Sec. 1308(a), redesignated subpar. (B) as (A)
    and struck out former subpar. (A) which read as follows: ''a member
    of an affiliated group (determined under section 1504 without
    regard to the exceptions contained in subsection (b) thereof),''.
      Subsec. (b)(2)(B). Pub. L. 104-188, Sec. 1308(a), redesignated
    subpar. (C) as (B). Former subpar. (B) redesignated (A).
      Pub. L. 104-188, Sec. 1616(b)(15), struck out ''or to which
    section 593 applies'' after ''subsection (c) thereof)''.
      Subsec. (b)(2)(C) to (E). Pub. L. 104-188, Sec. 1308(a),
    redesignated subpars. (D) and (E) as (C) and (D), respectively.
    Former subpar. (C) redesignated (B).
      Subsec. (b)(3). Pub. L. 104-188, Sec. 1308(b), added par. (3).
      Subsec. (c)(2)(A)(ii). Pub. L. 104-188, Sec. 1303, substituted
    ''2-year period'' for ''60-day period'' in first sentence and
    struck out at end ''If a trust is described in the preceding
    sentence and if the entire corpus of the trust is includible in the
    gross estate of the deemed owner, the preceding sentence shall be
    applied by substituting '2-year period' for '60-day period'.''
      Subsec. (c)(2)(A)(iii). Pub. L. 104-188, Sec. 1303(1),
    substituted ''2-year period'' for ''60-day period''.
      Subsec. (c)(2)(A)(v). Pub. L. 104-188, Sec. 1302(a), added cl.
    (v).
      Subsec. (c)(2)(B)(v). Pub. L. 104-188, Sec. 1302(b), added cl.
    (v).
      Subsec. (c)(5)(B)(iii). Pub. L. 104-188, Sec. 1304, substituted
    ''a trust described in paragraph (2), or a person which is actively
    and regularly engaged in the business of lending money'' for ''or a
    trust described in paragraph (2)''.
      Subsec. (c)(6). Pub. L. 104-188, Sec. 1308(d)(1), struck out par.
    (6) which read as follows:
      ''(6) Ownership of stock in certain inactive corporations. - For
    purposes of subsection (b)(2)(A), a corporation shall not be
    treated as a member of an affiliated group during any period within
    a taxable year by reason of the ownership of stock in another
    corporation if such other corporation -
        ''(A) has not begun business at any time on or before the close
      of such period, and
        ''(B) does not have gross income for such period.''
      Subsec. (c)(7). Pub. L. 104-188, Sec. 1316(a)(2), added par. (7).
      Subsec. (e). Pub. L. 104-188, Sec. 1302(c), added subsec. (e).
      Subsec. (e)(1)(A)(i). Pub. L. 104-188, Sec. 1316(e), struck out
    ''which holds a contingent interest and is not a potential current
    beneficiary'' after ''170(c)''.
      1989 - Subsec. (b)(2)(B). Pub. L. 101-239 amended subpar. (B)
    generally.  Prior to amendment, subpar. (B) read as follows: ''a
    financial institution which is a bank (as defined in section
    585(a)(2)) or to which section 593 applies,''.
      1988 - Subsec. (d)(3). Pub. L. 100-647 substituted ''within the
    meaning of'' for ''treated as a separate trust under'' in last
    sentence.
      1986 - Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 901(d)(4)(G),
    substituted ''which is a bank (as defined in section 585(a)(2)) or
    to which section 593 applies'' for ''to which section 585 or 593
    applies''.
      Subsec. (d)(3). Pub. L. 99-514, Sec. 1879(m)(1)(A), inserted at
    end ''A substantially separate and independent share of a trust
    treated as a separate trust under section 663(c) shall be treated
    as a separate trust for purposes of this subsection and subsection
    (c).''
      1984 - Subsec. (c)(6). Pub. L. 98-369, Sec. 721(c), amended par.
    (6) generally, substituting ''during any period within a taxable
    year'' for ''during any taxable year'' in provisions preceding
    subpar. (A), and substituting ''on or before the close of such
    period'' for ''on or after the date of its incorporation and before
    the close of such taxable year'' in subpar. (A), and ''does not
    have gross income for such period'' for ''does not have taxable
    income for the period included within such taxable year'' in
    subpar. (B).
      Subsec. (d)(2)(B)(i). Pub. L. 98-369, Sec. 721(f)(3), substituted
    ''corporation'' for ''S corporation'' in heading and text.
      Subsec. (d)(2)(D). Pub. L. 98-369, Sec. 721(f)(1), substituted
    ''15 days and 2 months'' for ''60 days''.
      Subsec. (d)(3). Pub. L. 98-369, Sec. 721(f)(2), in amending par.
    (3) generally, redesignated subpar. (C) as (A), substituted a
    period for '', and'' at end of subpar. (B), and struck out former
    subpar. (A) which read ''which owns stock in 1 or more S
    corporations''.
      Subsec. (d)(4). Pub. L. 98-369, Sec. 721(f)(2), in amending par.
    (4) generally, redesignated existing provisions as subpar. (A),
    inserted ''Failure to meet requirements of paragraph (3)(A)'' as
    subpar. (A) heading, substituted ''of paragraph (3)(A)'' for
    ''under paragraph (3)'', and added subpar. (B).

                      EFFECTIVE DATE OF 2007 AMENDMENT
2007 - PL 110-28
SEC. 8234. TREATMENT OF THE SALE OF INTEREST IN A QUALIFIED SUBCHAPTER S 
            SUBSIDIARY.
    (b) <<NOTE: 26 USC 1361 note.>>  Effective Date.--The amendments 
made by this section shall apply to taxable years beginning after 
December 31, 2006.

                      EFFECTIVE DATE OF 2007 AMENDMENT
2007 - PL 110-28
SEC. 8233. SPECIAL RULE FOR BANK REQUIRED TO CHANGE FROM THE RESERVE 
            METHOD OF ACCOUNTING ON BECOMING S CORPORATION.
    (b) <<NOTE: 26 USC 1361 note.>>  Effective Date.--The amendments 
made by this section shall apply to taxable years beginning after 
December 31, 2006.
                      
                      EFFECTIVE DATE OF 2007 AMENDMENT
2007 - PL 110-28
SEC. 8232. TREATMENT OF BANK DIRECTOR SHARES.
    (c) <<NOTE: 26 USC 1361 note.>>  Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2006.
            (2) Special rule for treatment as second class of stock.--In 
        the case of any taxable year beginning after December 31, 1996, 
        restricted bank director stock (as defined in section 1361(f) of 
        the Internal Revenue Code of 1986, as added by this section) 
        shall not be taken into account in determining whether an S 
        corporation has more than 1 class of stock.

                      EFFECTIVE DATE OF 2005 AMENDMENT
     P.L. 109-135, Section 413
     (d) Effective Date.--The <<NOTE: 26 USC 1361 note.>> amendments made 
     by this section shall take effect as if included in the provisions of 
     the American Jobs Creation Act of 2004 to which they relate.
                      EFFECTIVE DATE OF 2004 AMENDMENT
      Amendment by Pub.L.108-357,Sec.232(a), shall apply to
    taxable years beginning after December 31, 2004. Amendments
    by Sec.234(a)(1) and (2) shall apply to taxable years
    beginning after December 31, 2004. Amendments by Sec.236(a) 
    shall apply to transfers made after December 31, 2004.
    Amendments by Sec.239(a), shall apply to taxable years
    after December 31, 2004.
                      EFFECTIVE DATE OF 2000 AMENDMENT
      Amendment by Pub. L. 106-554 effective as if included in the
    provisions of the Small Business Job Protection Act of 1996, Pub.
    L. 104-188, to which such amendment relates, see section 1(a)(7)
    (title III, Sec. 316(e)) of Pub. L. 106-554, set out as a note
    under section 51 of this title.
                      EFFECTIVE DATE OF 1998 AMENDMENT
      Amendment by Pub. L. 105-206 effective, except as otherwise
    provided, as if included in the provisions of the Taxpayer Relief
    Act of 1997, Pub. L. 105-34, to which such amendment relates, see
    section 6024 of Pub. L. 105-206, set out as a note under section 1
    of this title.
                      EFFECTIVE DATE OF 1997 AMENDMENT
      Amendment by Pub. L. 105-34 effective as if included in the
    provisions of the Small Business Job Protection Act of 1996, Pub.
    L. 104-188, to which it relates, see section 1601(j) of Pub. L.
    105-34, set out as a note under section 23 of this title.
                      EFFECTIVE DATE OF 1996 AMENDMENT
      Amendment by sections 1301-1302(c), 1303, 1304, 1308(a), (b),
    (d)(1), and 1315 of Pub. L. 104-188 applicable to taxable years
    beginning after Dec. 31, 1996, see section 1317(a) of Pub. L.
    104-188, set out as a note under section 641 of this title.
      Amendment by sections 1316(a), (e) of Pub. L. 104-188 applicable
    to taxable years beginning after Dec. 31, 1997, see section 1316(f)
    of Pub. L. 104-188, set out as a note under section 170 of this
    title.
      Amendment by section 1616(b)(15) of Pub. L. 104-188 applicable to
    taxable years beginning after Dec. 31, 1995, see section 1616(c) of
    Pub. L. 104-188, set out as a note under section 593 of this title.
                      EFFECTIVE DATE OF 1989 AMENDMENT
      Amendment by Pub. L. 101-239 effective, except as otherwise
    provided, as if included in the provision of the Technical and
    Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
    amendment relates, see section 7817 of Pub. L. 101-239, set out as
    a note under section 1 of this title.
                      EFFECTIVE DATE OF 1988 AMENDMENT
      Amendment by Pub. L. 100-647 effective, except as otherwise
    provided, as if included in the provision of the Tax Reform Act of
    1986, Pub. L. 99-514, to which such amendment relates, see section
    1019(a) of Pub. L. 100-647, set out as a note under section 1 of
    this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by section 901(d)(4)(G) of Pub. L. 99-514 applicable to
    taxable years beginning after Dec. 31, 1986, see section 901(e) of
    Pub. L. 99-514, set out as a note under section 166 of this title.
      Section 1879(m)(2) of Pub. L. 99-514 provided that: ''The
    amendments made by this subsection (amending this section and
    section 1368 of this title) shall apply to taxable years beginning
    after December 31, 1982.''
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Section 721(y) of Pub. L. 98-369, as amended by Pub. L. 99-514,
    Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
      ''(1) In general. - Except as otherwise provided in this
    subsection, any amendment made by this section (amending this
    section, sections 48, 108, 267, 318, 465, 1362, 1363, 1367, 1368,
    1371, 1374, 1375, 1378, 1379, 6362, and 6659 and provisions set out
    as a note under this section) shall take effect as if included in
    the Subchapter S Revision Act of 1982 (Pub. L. 97-354).
      ''(2) Amendment made by subsection (b)(2). - Subparagraph (C) of
    section 108(d)(7) of the Internal Revenue Code of 1986 (formerly
    I.R.C. 1954) (as amended by subsection (b)(2)) shall apply to
    contributions to capital after December 31, 1980, in taxable years
    ending after such date.
      ''(3) Amendment made by subsection (g)(1). - If -
        ''(A) any portion of a qualified stock purchase is pursuant to
      a binding contract entered into on or after October 19, 1982, and
      before the date of the enactment of this Act (July 18, 1984), and
        ''(B) the purchasing corporation establishes by clear and
      convincing evidence that such contract was negotiated on the
      contemplation that, with respect to the deemed sale under section
      338 of the Internal Revenue Code of 1986, paragraph (2) of
      section 1362(e) of such Code would apply,
    then the amendment made by paragraph (1) of subsection (g)
    (amending section 1362 of this title) shall not apply to such
    qualified stock purchase.
      ''(4) Amendments made by subsection (l). - The amendments made by
    subsection (l) (amending section 1362 of this title) shall apply to
    any election under section 1362 of the Internal Revenue Code of
    1986 (or any corresponding provision of prior law) made after
    October 19, 1982.
      ''(5) Amendment made by subsection (t). - If -
        ''(A) on or before the date of the enactment of this Act (July
      18, 1984) 50 percent or more of the stock of an S corporation has
      been sold or exchanged in 1 or more transactions, and
        ''(B) the person (or persons) acquiring such stock establish by
      clear and convincing evidence that such acquisitions were
      negotiated on the contemplation that paragraph (2) of section
      1362(e) of the Internal Revenue Code of 1986 would apply to the S
      termination year in which such sales or exchanges occur,
    then the amendment made by subsection (t) (amending section 1362 of
    this title) shall not apply to such S termination year.''
                               EFFECTIVE DATE
      Section 6 of Pub. L. 97-354, as amended by Pub. L. 97-448, title
    III, Sec. 305(d)(1)(A), Jan. 12, 1983, 96 Stat. 2399; Pub. L.
    98-369, div.  A, title VII, Sec. 721(i), (k), July 18, 1984, 98
    Stat. 969; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
    provided that:
      ''(a) In General. - Except as otherwise provided in this section,
    the amendments made by this Act (enacting this section and sections
    1362, 1363, 1366 to 1368, 1371 to 1375, 1377 to 1379, and 6241 to
    6245 of this title, amending sections 31, 44D to 44F, 46, 48, 50A,
    50B, 52, 53, 55, 57, 58, 62, 108, 163, 168, 170, 172, 179, 183,
    189, 194, 267, 280, 280A, 291, 447, 464, 465, 613A, 992, 1016,
    1101, 1212, 1251, 1254, 1256, 3453, 3454, 4992, 4996, 6037, 6042,
    6362, and 6661 of this title and section 1108 of Title 29, Labor,
    omitting section 1376 of this title, and enacting provisions set
    out as a note under section 1 of this title) shall apply to taxable
    years beginning after December 31, 1982.
      ''(b) Transitional Rules. -
        ''(1) Sections 1379 and 62(9) continue to apply for 1983. -
      Sections 1379 and 62(9) of the Internal Revenue Code of 1986
      (formerly I.R.C. 1954) (as in effect before the date of the
      enactment of this Act (Oct. 19, 1982)) shall remain in effect for
      years beginning before January 1, 1984.
        ''(2) Allowance of exclusion of death benefit. -
      Notwithstanding section 241(b) of the Tax Equity and Fiscal
      Responsibility Act of 1982 (section 241(b) of Pub. L. 97-248, set
      out as a note under section 416 of this title) in the case of
      amounts received under a plan of an S corporation, the amendment
      made by section 239 of such Act (section 239 of Pub. L. 97-248,
      amending section 101 of this title) shall apply with respect to
      decedents dying after December 31, 1982.
        ''(3) New passive income rules apply to taxable years beginning
      during 1982. - In the case of a taxable year beginning during
      1982 -
          ''(A) sections 1362(d)(3), 1366(f)(3), and 1375 of the
        Internal Revenue Code of 1986 (as amended by this Act (Pub. L.
        97-354)) shall apply, and
          ''(B) section 1372(e)(5) of such Code (as in effect on the
        day before the date of the enactment of this Act (Oct. 19,
        1982)) shall not apply.
      The preceding sentence shall not apply in the case of any
      corporation which elects (at such time and in such manner as the
      Secretary of the Treasury or his delegate shall prescribe) to
      have such sentence not apply.  Subsection (e) shall not apply to
      any termination resulting from an election under the preceding
      sentence.
      ''(c) Grandfather Rules. -
        ''(1) Subsidiaries which are foreign corporations or disc's. -
      In the case of any corporation which on September 28, 1982, would
      have been a member of the same affiliated group as an electing
      small business corporation but for paragraph (3) or (7) of
      section 1504(b) of the Internal Revenue Code of 1986,
      subparagraph (A) of section 1361(b)(2) of such Code (as amended
      by section 2) shall be applied by substituting 'without regard to
      the exceptions contained in paragraphs (1), (2), (4), (5), and
      (6) of subsection (b) thereof' for 'without regard to the
      exceptions contained in subsection (b) thereof'.
        ''(2) Casualty insurance companies. -
          ''(A) In general. - In the case of any qualified casualty
        insurance electing small business corporation -
            ''(i) the amendments made by this Act shall not apply, and
            ''(ii) subchapter S (as in effect on July 1, 1982) of
          chapter 1 of the Internal Revenue Code of 1986 (former
          sections 1371 to 1379 of this title) and part III of
          subchapter L of chapter 1 of such Code (section 831 et seq.
          of this title) shall apply.
          ''(B) Qualified casualty insurance electing small business
        corporation. - The term 'qualified casualty insurance electing
        small business corporation' means any corporation described in
        section 831(a) of the Internal Revenue Code of 1986 if -
            ''(i) as of July 12, 1982, such corporation was an electing
          small business corporation and was described in section
          831(a) of such Code,
            ''(ii) such corporation was formed before April 1, 1982,
          and proposed (through a written private offering first
          circulated to investors before such date) to elect to be
          taxed as a subchapter S corporation and to be operated on an
          established insurance exchange, or
            ''(iii) such corporation is approved for membership on an
          established insurance exchange pursuant to a written
          agreement entered into before December 31, 1982, and such
          corporation is described in section 831(a) of such Code as of
          December 31, 1984.
     A corporation shall not be treated as a qualified casualty
        insurance electing small business corporation unless an
        election under subchapter S of chapter 1 of such Code is in
        effect for its first taxable year beginning after December 31,
        1984.
        ''(3) Certain corporations with oil and gas production. -
          ''(A) In general. - In the case of any qualified oil
        corporation -
            ''(i) the amendments made by this Act shall not apply, and
            ''(ii) subchapter S (as in effect on July 1, 1982) of
          chapter 1 of the Internal Revenue Code of 1986 (former
          sections 1371 to 1379 of this title) shall apply.
          ''(B) Qualified oil corporation. - For purposes of this
        paragraph, the term 'qualified oil corporation' means any
        corporation if -
            ''(i) as of September 28, 1982, such corporation -
           ''(I) was an electing small business corporation, or
           ''(II) was a small business corporation which made an
            election under section 1372(a) after December 31, 1981, and
            before September 28, 1982,
            ''(ii) for calendar year 1982, the combined average daily
          production of domestic crude oil or natural gas of such
          corporation and any one of its substantial shareholders
          exceeds 1,000 barrels, and
            ''(iii) such corporation makes an election under this
          subparagraph at such time and in such manner as the Secretary
          of the Treasury or his delegate shall prescribe.
          ''(C) Average daily production. - For purposes of
        subparagraph (B), the average daily production of domestic
        crude oil or domestic natural gas shall be determined under
        section 613A(c)(2) of such Code without regard to the last
        sentence thereof.
          ''(D) Substantial shareholder. - For purposes of subparagraph
        (B), the term 'substantial shareholder' means any person who on
        July 1, 1982, owns more than 40 percent (in value) of the stock
        of the corporation.
        ''(4) Continuity required. -
          ''(A) In general. - This subsection shall cease to apply with
        respect to any corporation after -
            ''(i) any termination of the election of the corporation
          under subchapter S of chapter 1 of such Code, or
            ''(ii) the first day on which more than 50 percent of the
          stock of the corporation is newly owned stock within the
          meaning of section 1378(c)(2) of such Code (as amended by
          this Act (Pub. L. 97-354)).
          ''(B) Special rules for paragraph (2). -
            ''(i) Paragraph (2) shall also cease to apply with respect
          to any corporation after the corporation ceases to be
          described in section 831(a) of such Code.
            ''(ii) For purposes of determining under subparagraph
          (A)(ii) whether paragraph (2) ceases to apply to any
          corporation, section 1378(c)(2) of such Code (as amended by
          this Act (Pub. L. 97-354)) shall be applied by substituting
          'December 31, 1984' for 'December 31, 1982' each place it
          appears therein.
      ''(d) Treatment of Existing Fringe Benefit Plans. -
        ''(1) In general. - In the case of existing fringe benefits of
      a corporation which as of September 28, 1982, was an electing
      small business corporation, section 1372 of the Internal Revenue
      Code of 1986 (as added by this Act (Pub. L. 97-354)) shall apply
      only with respect to taxable years beginning after December 31,
      1987.
        ''(2) Requirements. - This subsection shall cease to apply with
      respect to any corporation after whichever of the following first
      occurs:
          ''(A) the first day of the first taxable year beginning after
        December 31, 1982, with respect to which the corporation does
        not meet the requirements of section 1372(e)(5) of such Code
        (as in effect on the day before the date of the enactment of
        this Act (Oct. 19, 1982)),
          ''(B) any termination after December 31, 1982, of the
        election of the corporation under subchapter S of chapter 1 of
        such Code, or
          ''(C) the first day on which more than 50 percent of the
        stock of the corporation is newly owned stock within the
        meaning of section 1378(c)(2) of such Code (as amended by this
        Act (Pub. L. 97-354)).
        ''(3) Existing fringe benefit. - For purposes of this
      subsection, the term 'existing fringe benefit' means any employee
      fringe benefit of a type which the corporation provided to its
      employees as of September 28, 1982.
      ''(e) Treatment of Certain Elections Under Prior Law. - For
    purposes of section 1362(g) of the Internal Revenue Code of 1986,
    as amended by this Act (Pub. L. 97-354) (relating to no election
    permitted within 5 years after termination of prior election), any
    termination or revocation under section 1372(e) of such Code (as in
    effect on the day before the date of the enactment of this Act
    (Oct. 19, 1982)) shall not be taken into account.
      ''(f) Taxable Year of S Corporations. - Section 1378 of the
    Internal Revenue Code of 1986 (as added by this Act (Pub. L.
    97-354)) shall take effect on the day after the date of the
    enactment of this Act (Oct. 19, 1982). For purposes of applying
    such section, the reference in subsection (a)(2) of such section to
    an election under section 1362(a) shall include a reference to an
    election under section 1372(a) of such Code as in effect on the day
    before the date of the enactment of this Act (Oct. 19, 1982).''
                ELIMINATION OF CERTAIN EARNINGS AND PROFITS
      Section 1311(a) of Pub. L. 104-188 provided that: ''If -
        ''(1) a corporation was an electing small business corporation
      under subchapter S of chapter 1 of the Internal Revenue Code of
      1986 for any taxable year beginning before January 1, 1983, and
        ''(2) such corporation is an S corporation under subchapter S
      of chapter 1 of such Code for its first taxable year beginning
      after December 31, 1996,
    the amount of such corporation's accumulated earnings and profits
    (as of the beginning of such first taxable year) shall be reduced
    by an amount equal to the portion (if any) of such accumulated
    earnings and profits which were accumulated in any taxable year
    beginning before January 1, 1983, for which such corporation was an
    electing small business corporation under such subchapter S.''
             PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
      For provisions directing that if any amendments made by subtitle
    A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
    any plan, such plan amendment shall not be required to be made
    before the first plan year beginning on or after Jan. 1, 1989, see
    section 1140 of Pub. L. 99-514, as amended, set out as a note under
    section 401 of this title.
                          TRANSITIONAL PROVISIONS
      Pub. L. 97-448, title III, Sec. 305(d)(1)(B), Jan. 12, 1983, 96
    Stat. 2399, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
    100 Stat. 2095, provided that: ''If -
        ''(i) after September 30, 1982, and on or before the date of
      the enactment of this Act (Jan. 12, 1983), stock or securities
      were transferred to a small business corporation (as defined in
      section 1361(b) of the Internal Revenue Code of 1986 (formerly
      I.R.C. 1954) as amended by the Subchapter S Revision Act of 1982
      (Pub. L. 97-354)) in a transaction to which section 351 of such
      Code applies, and
        ''(ii) such corporation is liquidated under section 333 of such
      Code before March 1, 1983,
    then such stock or securities shall not be taken into account under
    section 333(e)(2) of such Code.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 280G, 512, 641, 678, 856,
    1362 of this title; title 29 section 1108.
 

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